It has been an odd session: after yesterday’s unexpected late day swoon despite the ECB launch of “Private QE”, late night trading saw a major reversal in USDJPY trading which soared relentlessly until it rose to fresh 6 year highs, briefly printing at 105.70, a level not seen since October 2008, before giving back all gains in overnight trading. It is unclear if it was this drop, or some capital reallocation from the US into Europe, but for whatever reason while Europe has seen a stable – if fading in recent hours – risk bid, and European bonds once again rising and Irish and Italian yields both dropping to record low yield, US equity futures have slumped and are now trading at the lows of the session ahead of a US nonfarm payroll print which is expected to rise and print for the 7th consecutive time above 200K, at 230K to be precise, up from 209K in July (down from 288K in June). It is unclear if the market is in a good news is bad news mood today, but for now the algos are not taking any chances and have exited risky positions, with the ES at the low end of the range the market has been trading in for the past week centered aroun S&P 2000.
In any event, if the equity bid does not recover soon, the ECB’s intervention may be the weakest, or most priced in for, central bank intervention in New Normal history.
On the geopolitical front, there are just two thing to keep track of:
PRO-RUSSIAN REBELS SAY THEY HAVE ENTERED THE CITY OF MARIUPOL IN UKRAINE – RUSSIA’S INTERFAX QUOTES SOURCE AMONG DONETSK SEPARATISTS and
UKRAINE REBEL LEADERS ARRIVE FOR PEACE TALKS IN MINSK So more of the same: peace talks even as the separatists have made their biggest territorial gains since the early summer. Watch the resolution of this carefully as it will likely take place just after NFP when most traders will be on their way out.
Another notable development overnight took place in Japan which announced it is preparing a backup plan for fiscal stimulus. It appears that the BOJ is now fully resolved to not to more QE, which may be what is weighing on the USDJPY.
This post was published at Zero Hedge on 09/05/2014.